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Massachusetts Foreclosure Procedure now ‘Clouds’
Ownership rights in foreclosed property
If you plan to foreclose on some property or recently purchased property in foreclosure, you need to be aware of some recent and significant changes. The Massachusetts Supreme Judicial Court announced in March that it would take direct review of a 2009 Land Court decision that put Massachusetts in the minority of U.S. jurisdictions that do not recognize the often used “post notice post auction assignment” procedure in the foreclosure process. In essence, this decision provided a framework for invalidating completed foreclosure sales where a document commonly known as a “post-notice post-auction assignment” was used. The decision has created significant controversy in the banking and real estate industries. With the projected volume of foreclosures expected to escalate, the Supreme Judicial Court’s review of this decision will be closely watched.
The 2009 Massachusetts Land Court decision being reviewed, U.S. Bank National Association v. Ibanez, was also followed but, a series of similar cases reaching the similar results by applying a strict interpretation of the requirements for the Massachusetts Foreclosure Procedures Act, (“Act”), M.G.L. c. 244, in finding the use of “post notice post auction assignments” improper and inconsistent with the requirements of Section 14 of the Act. The use of post foreclosure assignments has its roots in the banking community’s need to meet the consumer demand for more cash. To meet that demand, banks bundled mortgages and sold them for cash to an originator. The originator would then peddle these ‘bundled’ mortgages on Wall Street. This process involved the assignment of the mortgage to a new mortgage holder several times or more. In fact in Ibanez, the mortgage was assigned four times prior to foreclosure. Often times, all the paper work for each assignment did not catch up to the new mortgage holder. So, whoever held the mortgage at the time of foreclosure may not have had legal title to commence such proceedings because it was not properly assigned the rights to the mortgage. Prior to Ibanez, when assignment of both the promissory note and the mortgage had not occurred prior to foreclosure, a “post notice post auction assignment” would be used to cure this defect. The post transaction assignment was seen as a ‘no harm no foul’ situation- until the Ibanez decision.
Foreclosure sales, to be valid, now must have a recorded assignment and mortgage on the date of the first published notice of foreclosure in order to have the proper rights to foreclose on a property. Title acquired after the first published notice and/or auction is no longer acceptable. Any foreclosure sale instituted without the properly assigned rights necessary to foreclose on the property would be invalid.
The SJC is not expected to rule on this matter until next year. Until that time, many in the real estate and banking industry must carefully review, execute and record the proper documents prior to commencing
Continued on next page with foreclosure notices. As an alternative, some may chose other routes to dispose of the property such as ‘short sales.’ The decision has also created talk about the impact it may have on buyers who purchase foreclosed properties for use as a primary residence from a seller that used a post- sale assignment. As the industry watches this issue, it is one that either the Supreme Judicial Court, or perhaps the Legislature, will have a hand in addressing soon.
‘Green building’ regulations now ‘stretch’ beyond state building code requirements in some towns
Attention residential and commercial builders – the “Stretch Code” is here. The next time you file for a building permit from a municipal official make sure you find out if the “Stretch Code” has been adopted by that municipality because it will require any construction within the borders of that municipality to be performed in a way that creates energy efficient performance standards beyond the existing IECC requirements adopted in the most recent version of the Massachusetts State Building Code. The “Stretch Code” was approved as an appendix to the State Building Code that, at the election of any municipality, may be adopted as the binding regulations for any construction in lieu of the energy efficiency provisions set forth in the statewide building code, now on its 7
Approximately 20 municipalities have already adopted this optional regulatory scheme and made it the law in those respective municipalities for energy efficient construction. For example, the “Stretch Code” may require new residential construction to use 65% of the energy the same as a new home would have used had it been built under the 2006 7
th Edition of the Statewide Building Code. The “Stretch Code” is a product of the 2008 Green Communities Act signed into law by the Governor. The “Stretch Code” goes beyond what the “base code” applicable statewide requires with regard to energy efficient construction. The “Stretch Code” does have certain exceptions with regard to its applicability to projects in the towns that have adopted the “Stretch Code.” These exceptions are generally based upon the square footage of the project.
The State Building Code was also recently amended to create a new “base” code for energy efficient construction in both residential and commercial work. Prior to the amendment, the Building Code dictated minimum standards for energy efficiency by focusing more on methods and techniques for energy efficient construction. Under the new amendment, “Code” compliance is dictated now by performance standards of the building once complete. A performance standard requirement is similar to the process for achieving LEED certifications now increasingly required on various projects. For example, instead of the Building Code requiring that windows use caulking or stripping, the Building Code will require the window to be built so as to meet certain energy efficient performance standards. The “Stretch Code” varies from the “base code” in that the “Stretch Code” is adopted as law at the municipal level and used in lieu of statewide regulations governing energy efficiency. It also raises the performance standards for such energy efficiency that would otherwise be applicable under the statewide building code.
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While an architect may set forth specifications for construction of the window, the construction must achieve the performance standard for the building inspector to deem it compliant and ‘close out’ the permit. Many builders are bound in their contracts to language where they must comply with local codes. So, builders should pay close attention to these requirements and use requests for information from the design professional when necessary to ensure building to the plans will also satisfy the inspector’s performance standards.
Officials estimate that the energy efficient regulatory requirements will have some cost impact, but not a significant one. Some analyze these increased construction costs as being recouped in the savings generated by the building upon its completion and operation. With greater regulatory requirements for energy efficient construction, builders and project owners may now want to consider if, under these new regulatory requirements, the extra step of achieving LEED certification makes sense. So, if you are building, make sure you take into account the new energy efficiency requirements for construction in Massachusetts, especially where those requirements may now vary from town to town with the use of the “Stretch Code.”
New Regulations for Smoke Detectors
The April 2010 compliance deadline has now passed for new regulations regarding the type of smoke detectors required for certain residential dwellings. So, if you are a developer, broker or homeowner planning to sell a home or residential unit, you should know about these new requirements. Existing Massachusetts law, M.G.L. c. 148 § 26F, already requires an inspection by the local fire officials prior to conveyance of a dwelling. The new regulations promulgated under the State Fire Prevention Code now require that residential dwellings subject to this statutorily mandated inspection use “photoelectronic” smoke detectors instead of “ionization” based detectors in certain parts of the home to reduce the number of false alarms. Apparently, testing has shown that “ionization” detectors have a greater incidence of false alarms than “photoelectric” based detectors due to things like cooking smoke or shower steam. A higher incidence of false alarms generally also leads to the occupants of a dwelling disabling the smoke detectors, leaving the home with no early warning of fire. In adopting this new regulation, officials are seeking to mitigate circumstances where occupants disable the smoke alarms by requiring a system that has a lower incidence of false alarms. So, under the inspection required by law prior to selling a dwelling, the fire official will now look for the proper type of smoke detectors in the home. Dwellings less than 79 feet high, less than six units or those that have not been substantially altered since 1975 are subject to these inspections.
The new regulations do not change the locations where smoke detectors must be installed in those buildings; rather, the regulations change the technologies that the smoke detectors must employ in certain areas. For example, only photoelectric smoke detectors will be allowed in areas that are within 20 feet of a kitchen or bathroom containing a bathtub or shower. Previously, both photoelectric and ionization smoke detectors were allowed-and required-in those areas.
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In addition to smoke detectors, members of the real estate community should remember that Massachusetts adopted a law in 2006 also mandating the installation of carbon monoxide detectors in homes to avoid the tragic accidents this silent killer can also cause. I encourage you to contact me if you have any questions regarding compliance with this new regulation.
Massachusetts Shoreline Development Now Subject To Newly Published Massachusetts Ocean Management Plan
To keep you updated on the national precedent the Commonwealth of Massachusetts created by enacting a statue to regulate its coastline and marine resources, known as the Oceans Act of 2008, the Office of Energy and Environmental Affairs released this year the final two-volume Massachusetts Ocean Management Plan. This regulatory scheme should be considered for its impact on marine, near water or other developments, including those requiring a “Chapter 91” license for building in tidelands.
This final plan is a culmination of revisions based on written comments and testimony presented at numerous public hearings, and other meetings with various stakeholders such as fishermen, renewable energy experts, pilots, and academics. A draft plan was issued in July 2009 for public comment.
For the real estate community, the final plan provides for more community-scale wind energy development, and delegates to regional planning authorities the formal role of wind energy planning. The final plan provides for additional protections for critical environmental resources in coastal waters at least 0.3 nautical miles seaward of mean high water (excluding the most developed harbor and port areas) and extending to the three-mile limit of state control. Further, the final plan incorporates the three management categories as outlined in the draft plan, prohibited areas, multi-use areas, and renewable energy areas, and applies them to the Commonwealth’s ocean waters. The plan dictates that the Multi-Use Area, which is comprised of two-thirds of the planning area, will have strong, new protections for critical marine species and habitats. The plan further designates two areas (comprising two percent of the entire planning area) as suitable for commercial-scale wind energy development: off the Elizabeth Islands and south of Nomans Land, off Martha’s Vineyard.
State agencies will be implementing the Massachusetts Ocean Management Plan by bringing existing environmental regulations into compliance with the increased protections as required by the final plan.